Speaking to Accountants Daily, Hayes Knight director Greg Hayes said that accounting firms need to have a more elevated focus on risk management.

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“There’s increased evidence of actions being taken against firms for things that they probably didn't contemplate that there was a risk with,” Mr Hayes said.

“The danger here is not so much the risks that are clear and obvious, the risks that are clear and obvious we all tend to deal with and manage, it tends to be the risks that aren't so obvious.”

Mr Hayes said it’s not the typical accountant-client engagements, but the casual advice given on an informal basis that can result in accountants being caught out.

“We're talking about the casual piece of advice where the accountant really doesn't believe they're giving advice, they believe that they’re just providing some general commentary or helping somebody out,” he said.

“But something goes wrong and that person says, ‘No, the accountant was giving me advice so I’m going to take actions against them’.”

Even in traditional accountant-client engagements, Mr Hayes warned that the client can take action against the accountant for the purported getting of financial advice.

“This could be as simple as the client who comes to an accountant and says, ‘I’m looking at buying a business, could you have a look at the cash flows for me?’. The accountant looks at the cash flows and in his or her mind what they're doing is simply giving the client some feedback on what cash flows in a business look like,” he said.

“If the client subsequently goes ahead and invests in that business and something goes wrong, then the question is did the accountants actually advise the client directly or indirectly that the business was a good business to invest in?”

The danger here for accountants is twofold, according to Mr Hayes.

“One is the risk that it's possible they could be giving financial advice, but the second risk is if they're not authorised or licensed to do that and they're just operating in their accounting world and doing it,” he said.

“The problem is their PI policy won't cover them, because the PI policy will simply say, ‘This claim is in relation to financial advice, you're not covered for giving financial advice, so we're out of here’. So the accountant is exposed, not only at risk level but at a financial level, because their PI policy won't be there.”

Mr Hayes said accountants can avoid falling into these situations by ensuring they have clear, formal policies around their engagement with clients.

“When we get busy and when a client asks for some assistance, it's very easy to jump in and do that without covering off the formality of the engagement, but it’s quite important for clients to make sure that they've got their formality in place and risk management procedures in place that cover them for exposure,” he said.

“It's that lack of formality that, if there is going to be any issues, often comes back to bite them, because there may be nothing there that actually proves that they did give financial advice, but there's nothing that proves they didn't.”

“Then it opens this grey area of 'Is there a claim here or isn't there?'.”